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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Frontier Smart Technologies Group Limited | LSE:FST | London | Ordinary Share | KYG3730C1078 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 25.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
TIDMFST
RNS Number : 0256B
Frontier Smart Technologies Grp Ltd
18 September 2018
For immediate release 18 September 2018
Frontier Smart Technologies Group Limited
('Frontier', the 'Group' or the 'Company')
Half-Year Results
Frontier Smart Technologies Group Limited (AIM: FST), a pioneer in technologies for Digital Radio and Smart Audio devices, announces its half-year results for the six months ended 30 June 2018 ('H1-2018' or the 'period').
Highlights
-- Results for H1-2018 are in line with the Group's trading update issued in July 2018. The comparative period in 2017 was exceptionally strong. In H1-2018:
o revenues were US$17.0 million (H1-2017: US$25.0 million)
o adjusted EBITDA(1) loss was US$2.1 million (H1-2017: profit US$1.4 million)
o period end cash was US$3.4 million (30 June 2017: US$6.3 million)
o net debt was US$3.2 million (30 June 2017: net cash US$1.7 million)
Outlook
-- Digital Radio EBITDA is expected to improve in H2-2018 as sales volumes recover in line with underlying market growth
-- Smart Audio EBITDA losses are expected to reduce sharply in H2-2018 due to lower R&D expenditure and operational costs
-- The Board anticipates an improved second half and the achievement of full year market expectations for EBITDA
Strategy
-- The Board remains fully focused on maximising shareholder value and is committed to improving the Group's cash generation and profitability in 2019
-- To support this, the Group's key operational and strategic aims are:
o in Digital Radio, to maximise positive cashflows
o in Smart Audio, to deliver positive EBITDA in FY-2019 by tightly controlling R&D expenditure and leveraging important ecosystem relationships
o to exploit Frontier's respected multi-ecosystem software and cloud assets via the Group's newly established Licensing and Services business unit, which will address the significant growth opportunities in Smart Audio and Smart IoT. Recent agreements with Amazon and NXP are strong initial validations of this approach
-- As part of its Group strategy, Frontier has already implemented a cost rationalisation programme, resulting in annualised savings of US$3.4 million.
Anthony Sethill, CEO of Frontier, commented:
"As previously announced, the first half of the year has been challenging but we are now seeing a recovery in order levels and we expect a substantially stronger EBITDA performance in H2-2018.
"The Group's Smart Audio business achieved moderate revenue growth in H1-2018 and we expect a significant reduction in the losses for Smart Audio in the second half of the year as we control costs by reducing our investment in R&D.
"To support the Group's longer-term strategy, we have established a new Licensing and Services business unit, which is focused on licensing the Group's existing software and cloud assets to the broader Smart IoT market, including the Smart Audio vertical. In addition to our relationship with Google we have recently announced collaboration agreements with Amazon and NXP, which will support this business unit. We expect Licensing and Services to deliver its first revenues in 2019."
Notes:
(1) Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, and before share-based payments and restructuring charges.
For further enquiries:
Frontier Smart Technologies Group Ltd +44 (0) 20 7391 0630 Anthony Sethill, Chief Executive Officer Jonathan Apps, Chief Financial Officer N+1 Singer (Nominated Adviser and Broker) +44 (0) 20 7496 3000 Shaun Dobson / Ben Farrow Buchanan (Financial Communications) +44 (0) 20 7466 5000 Henry Harrison-Topham / Steph Watson / FST@buchanan.com Gemma Mostyn-Owen
About Frontier
Frontier Smart Technologies Group is a pioneer in technologies for Digital Radio and Smart Audio. Customers include many leading consumer audio brands: Bose, Denon, harman/kardon, JBL, Onkyo, Panasonic, Sony, Yamaha, Altec Lansing, Blaupunkt, Grundig, Hama, Klipsch, Marshall, Pioneer, Pure, Roberts, TechniSat, Teufel and many more. Established in 2001, the Group is headquartered in London, with engineering, sales, marketing and operations teams in Cambridge, Timisoara (Romania), Hong Kong, and Shenzhen.
Forward-looking statements
Certain statements made in this release are forward-looking statements. Such statements have been made by the Directors in good faith using information available up until the date that they approved this update. Forward-looking statements should be regarded with caution because of the inherent uncertainties in economic trends and business risks.
MAR
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation. Upon the publication of this announcement via a regulatory information service, this inside information is now considered to be in the public domain.
Overview of H1-2018 performance
Following exceptionally strong results achieved in H1-2017 driven, in the main, by the Norwegian switch-over, the Group's financial performance in H1-2018 was disappointing. Revenues of US$17.0 million were down 32% (H1-2017: US$25.0 million) and the adjusted EBITDA loss was US$2.1 million (H1-2017: EBITDA of US$1.4 million). The decline in EBITDA is partly attributable to exchange rate fluctuations, in constant currency terms, the H1-2018 EBITDA loss would have been US$0.4 million lower at US$1.7 million. Excluding the impact of Norway, the underlying performance of the retail markets for devices enabled by Frontier's solutions was broadly positive.
Digital Radio sales in H1-2017 were about 10% higher than would have been expected had it not been for the switch-off of FM in Norway. With the switch-off completing in December 2017, a fall in Digital Radio revenues in H1-2018 was expected. However, in practice the decline was significantly steeper than forecast, down 36% to US$14.9 million (H1-2017: US$23.1 million), due to customers holding excess stock at the beginning of 2018. This had a particular impact on sales in Q2-2018. Since the end of the period volumes have started to recover, underpinned by steady growth in retail DAB markets across most of Europe. In H1-2018, EBITDA for the Digital Radio business, excluding any allocation of Group overheads, was US$3.0 million (H1-2017: US$6.4 million).
Smart Audio revenues in H1-2018 were up 19% to US$2.2 million (H1-2017: US$1.8 million). Revenues were generated by sales of the Group's Minuet module with Google Chromecast built-in and design services fees for customer-specific projects. Customers include Zound, Altec Lansing and Harman JBL.
Growth in this sector has been slower than expected. The market for smart audio devices, such as smart speakers, soundbars and AVRs, from third party brands which are Frontier's target customers, has been constrained by the promotional strategies of Google and Amazon, who have focused heavily on driving sales of their first party products. These difficult trading conditions, combined with the costs associated with the closing stages of the Group's major Smart Audio R&D programme, contributed to an unchanged H1-2018 EBITDA loss for the business line of US$4.7 million (H1-2017: loss of US$4.7 million).
Whilst the market conditions for Smart Audio have been difficult, the Board believes that the Group is well-positioned to address the longer-term opportunities in this sector. Frontier is currently the only system integrator to support all three major ecosystems (Google, Amazon and Apple). The Group's first voice-enabled solution, Minuet with Google Assistant, reached mass production in Q2-2018. In Q3-2018, Frontier launched its new 'Works With' solution, which will allow Smart Audio products without their own built-in microphones to be controlled via voice-enabled devices from Google, Amazon and Apple.
The Group has also announced two important new strategic relationships since the end of the period. In August 2018 Frontier was approved by Amazon as an official Alexa Voice Services solution provider. As a result, Frontier is now able to work with third-party brands and manufacturers to integrate Alexa into smart audio devices and other smart IoT products, such as home automation, smart appliances and security systems.
The Group has also announced an agreement with NXP, a global semiconductor manufacturer, to collaborate on software licensing to customers in Smart Audio and IoT. In the audio space, the initial focus of this collaboration will include soundbars, where NXP's silicon enables mainstream devices to include previously high-end features at cost-effective prices. In Smart IoT, the two companies plan to work together on home appliances, such as air conditioners and home appliances, where voice control is an attractive feature and where there are also exist significant audio challenges, due to the noise levels produced by those devices.
During the period, the Group restructured its third-party debt, converting the US$6.9 million term loan into a three-year revolving credit facility.
In order to address the impact of the adverse trading conditions in H1-2018 and the reduced short-term growth prospects for Smart Audio, the Board undertook a cost rationalisation programme in May 2018 that resulted in an annualised reduction in R&D and overhead cost of US$3.4 million against budget. The charges associated with this restructuring amounted to US$0.2 million in the first half and are recorded below EBITDA.
Prospects
The Digital Radio business is expected to generate strong positive cashflows for the foreseeable future. In the second half of 2018, sales volumes are expected to return to more normalised patterns, i.e. a stronger performance than in H1-2018. The key engine of growth is continental Europe, where growth is being driven by Germany, Netherlands, France, Belgium, Italy and Denmark. Switzerland is the next country to switch off its FM signals, which is expected in 2020-24. R&D expenditure for Digital Radio will be tightly managed and will continue to be focused on retaining the Group's market leadership and sustaining strong positive cashflows.
As mentioned above, the Smart Audio business has to date been constrained by the support given by the major ecosystem players to their first party products. In light of these market conditions, and following the completion of the major phase of investment in its multi-ecosystem platform, the Group has significantly reduced its expenditure in Smart Audio R&D. This business line is expected to remain loss-making in H2-2018, but with losses significantly lower than in H1-2018.
The Group has recently established a new Licensing and Services business unit, which will leverage existing software and cloud assets to address opportunities in Smart Audio and the broader non-audio Smart IOT market. Software licensing is likely to appeal to larger brands and ODMs. Frontier's recently announced agreements with NXP and Amazon are important elements in this strategy. The development of a Licensing and Services business unit should promote a more resilient revenue stream and reduce the Group's exposure to inventory risk and fluctuating component prices. This business line is expected to generate its first revenues in 2019.
The Board
Dr Martin Knight, Chairman of the Board, and Chris Batterham, Non-Executive Director, announced in March that they would be stepping down from the Board in April 2018. Also in March 2018, the Group announced that Sir Hossein Yassaie was joining the Board as Non-Executive Director with immediate effect. At the same time the Group announced that it had initiated a search to identify further candidates to join the Board, including for the role of Chairman. In July 2018, Paul Taylor was appointed to the Group's Board as a Non-Executive Director and Chair of the Audit Committee. The search for a new Chairman remains ongoing.
Outlook
The Board expects an improved second half and achievement of the full year market expectations for EBITDA. Digital Radio EBITDA is expected to improve in H2-2018 as sales volumes recover in line with underlying market growth. Smart Audio EBITDA losses are expected to reduce sharply in H2-2018 due to lower R&D expenditure and operational costs.
Financial Review
H1-2018 revenues of US$17.0 million were down 32% year-on-year (H1-2017: US$25.0 million). EBITDA loss for H1-2018 was US$2.1 million (H1-2017: EBITDA of US$1.4 million). The decline in EBITDA was due to a halving of Digital Radio EBITDA to US$3.0 million (H1-2017: US$6.4 million), which was directly attributable to the impact of FM switch-off in Norway.
Smart Audio returned an unchanged EBITDA loss of US$4.7 million (H1-2017: US$4.7 million).
The Group achieved gross margin of US$7.1 million (H1-2017: US$10.2 million). In percentage terms, gross margin rose slightly from 41% to 42% of revenues, due to a small improvement in Smart Audio margins.
R&D expenditure increased by 28% to US$ 4.6 million (H1-2017: US$ 3.6 million) due to an increase in spending on Smart Audio. This was partially offset by a reduction in the Group's sales and administrative expenses to US$4.7 million (H1-2017: US$5.2 million).
EBITDA can be calculated as:
Hot Features
Premium
H1-2018 H1-2017
US$'000 US$'000
--------- ---------
Revenue 17,042 24,966
Cost of sales (9,906) (14,733)
--------- ---------
Gross margin 7,136 10,233
Research and development (4,563) (3,626)
Sales and administrative expenses (4,683) (5,221)
--------- ---------
EBITDA (2,110) 1,386
Below EBITDA, the Group reports interest, tax and depreciation and in the first half of 2018 a restructuring charge of US$234,000.
At 30 June 2018, the Group's gross cash balance was US$3.4 million (31 December 2017: US$7.9 million; 30 June 2017: US$6.3 million). This equates to a net cash position of US$(3.2) million (31 December 2017: net cash US$4.0 million; 30 June 2017: US$1.8 million). Cash has reduced in the first half, due to weaker trading but also due to a build-up in inventory to hedge against expected future component cost increases.
Group pre-tax loss was US$4.5 million (2017: loss US$0.9 million) with a loss per share of 10.86 cents (2017: loss 3.59 cents).
Anthony Sethill
Chief Executive Officer
18 September 2018
Consolidated Condensed Statement of Comprehensive Income
for the period ended 30 June 2018
Unaudited Unaudited Audited
six months six months year ended
ended ended 31 December
Note 30 June 2018 30 June 2017 2017
$'000 $'000 $'000
Revenue 3 17,042 24,966 52,978
Cost of sales (9,906) (14,733) (31,167)
------------------------------------- ---- ------------- ------------- ------------
Gross profit 7,136 10,233 21,811
------------------------------------- ---- ------------- ------------- ------------
Research & development (4,563) (3,626) (8,470)
Sales & administrative expenses (4,683) (5,221) (10,875)
EBITDA (2,110) 1,386 2,466
---- ------------- -------------
Non-recurring costs (234) - -
Amortisation (1,261) (1,491) (3,025)
Depreciation (214) (190) (377)
Share based payment (279) (450) (793)
------------------------------------- ---- ------------- ------------- ------------
Total administrative expenses (11,234) (10,978) (23,540)
------------------------------------- ---- ------------- ------------- ------------
Operating loss (4,098) (745) (1,729)
Finance income 1 7 11
Finance charges (394) (187) (362)
------------------------------------- ---- ------------- ------------- ------------
Loss before taxation (4,491) (925) (2,080)
Taxation (154) (611) (392)
------------------------------------- ---- ------------- ------------- ------------
Loss for the Period (4,645) (1,536) (2,472)
------------------------------------- ---- ------------- ------------- ------------
Other comprehensive income/
(expense)
Items that will be reclassified
subsequently to profit or
loss
Exchange differences on
translating foreign operations (384) 1,160 1,942
Other comprehensive income/(expense)
for the period (384) 1,160 1,942
------------------------------------- ---- ------------- ------------- ------------
Total comprehensive loss
for the period (5,029) (376) (530)
------------------------------------- ---- ------------- ------------- ------------
Loss per share
---- ------------- -------------
Basic & diluted earnings
per share
- From continuing operations 4 (10.86)c (3.59)c (5.78)c
Consolidated Condensed Statement of Financial Position at 30 June 2018
Unaudited Unaudited Audited Audited
Note 30 June 30 June 31 December 31 December
2018 2017 2017 2016
Assets $'000 $'000 $'000 $'000
Non-current assets
Goodwill 5 11,273 11,088 11,548 10,548
Other intangible assets 6 6,999 9,545 8,372 10,516
Property, plant and
equipment 579 441 411 496
18,851 21,074 20,331 21,560
----------------------------- ------ --------- --------- ------------ ------------
Current assets
Inventories 6,253 5,396 4,784 3,198
Tax receivable 170 415 170 1,388
Trade and other receivables 7 7,458 6,090 4,408 10,144
Cash and cash equivalents 3,385 6,256 7,920 4,172
----------------------------- ------ --------- --------- ------------ ------------
Total current assets 17,266 18,157 17,282 18,902 ----------------------------- ------ --------- --------- ------------ ------------ Total assets 36,117 39,231 37,613 40,462 ----------------------------- ------ --------- --------- ------------ ------------ Liabilities Current liabilities ----------------------------- ------ --------- --------- ------------ ------------ Trade and other payables 8 18,646 14,232 15,400 14,966 ----------------------------- ------ --------- --------- ------------ ------------ Total current liabilities 18,646 14,232 15,400 14,966 ----------------------------- ------ --------- --------- ------------ ------------ Other liabilities > 1 year 9 - 2,976 - 3,549 Total liabilities 18,646 17,208 15,400 18,515 ----------------------------- ------ --------- --------- ------------ ------------ Equity Share capital 10 6,844 6,835 6,836 6,833 Share premium 187,971 187,971 187,971 187,971 Share based payment reserve 9,300 8,678 9,021 8,228 Foreign exchange reserve (9,409) (9,807) (9,025) (10,967) Retained earnings (177,235) (171,654) (172,590) (170,118) Total equity 17,471 22,023 22,213 21,947 ----------------------------- ------ --------- --------- ------------ ------------ Total equity and liabilities 36,117 39,231 37,613 40,462 ----------------------------- ------ --------- --------- ------------ ------------
Consolidated Condensed Statement of Changes in Equity at 30 June 2018
Share
based Foreign
Share Share payment Retained exchange Total
capital premium reserve earnings reserve equity
$'000 $'000 $'000 $'000 $'000 $'000
At 1 January 2018 6,836 187,971 9,021 (172,590) (9,025) 22,213
Share-based payments - - 279 - - 279
Issue of share capital 8 - - - - 8
Transactions with
owners 8 - 279 - - 287
--------- -------- --------- --------- ---------- -------
Loss for the period - - - (4,645) - (4,645)
Other comprehensive
losses
Exchange differences
on translating foreign
operations - - - - (384) (384)
Total comprehensive
loss - - - (4,645) (384) (5,029)
--------- -------- --------- --------- ---------- -------
At 30 June 2018 6,844 187,971 9,300 (177,235) (9,409) 17,471
========= ======== ========= ========= ========== =======
Consolidated Condensed Statement of Changes in Equity
for the period ended 30 June 2017
Share
based Foreign
Share Share payment Retained exchange Total
capital premium reserve earnings reserve equity
$'000 $'000 $'000 $'000 $'000 $'000
At 1 January 2017 6,833 187,971 8,228 (170,118) (10,967) 21,947
Share-based payments - - 450 - - 450
Issue of share capital 2 - - - - 2
Transactions with
owners 2 - 450 - - 452
----- -------- --------- --------- ---------- -------
Loss for the period - - - (1,536) - (1,536)
Other comprehensive
losses
Exchange differences
on translating foreign
operations - - - - 1,160 1,160
Total comprehensive
loss - - - (1,536) 1,160 (376)
----- -------- --------- --------- ---------- -------
At 30 June 2017 6,835 187,971 8,678 (171,654) (9,807) 22,023
===== ======== ========= ========= ========== =======
Consolidated Condensed Statement of Changes in Equity
for the period ended 31 December 2017
Share
based Foreign
Share Share payment Retained exchange Total
capital premium reserve earnings reserve equity
$'000 $'000 $'000 $'000 $'000 $'000
At 1 January 2017 6,833 187,971 8,228 (170,118) (10,967) 21,947
Share-based payments - - 793 - - 793
Issue of share
capital 3 - - - - 3
Transactions with
owners 3 - 793 - - 796
--------- -------- --------- --------- ---------- -------
Loss for the period - - - (2,472) - (2,472)
Other comprehensive
losses
Exchange differences
on translating
foreign operations - - - - 1,942 1,942
Total comprehensive
loss - - - (2,472) 1,942 (530)
--------- -------- --------- --------- ---------- -------
At 31 December
2017 6,836 187,971 9,021 (172,590) (9,025) 22,213
========= ======== ========= ========= ========== =======
Consolidated Condensed Cash Flow Statement
for the period ended 30 June 2018
Unaudited Unaudited Audited
six months six months year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
$'000 $'000 $'000
Cash flows from operating activities
Loss before taxation (4,491) (925) (2,080)
Amortisation 1,261 1,491 3,025
Depreciation 214 190 377
Share based payments 279 450 793
Net interest paid 393 180 351
Increase in inventories (1,469) (2,198) (1,586)
Decrease/ (increase) in trade
and other receivables (3,050) 4,370 5,742
(Decrease)/ increase in trade
and other payables 520 (1,153) (1,934)
Foreign exchange movements 55 118 94
Tax refund - 657 1,212
Net cash (outflow) / inflow
from continuing operations (6,288) 3,180 5,994
------------------------------------------ ------------- ------------- ------------
Cash flow from investing activities
------------------------------------- --- ------------- ------------- ------------
Purchase of property, plant
and equipment (397) (126) (298)
Purchase on intangible assets (37) (27) (27)
Net cash (used in) investing
activities (434) (153) (325)
------------------------------------------ ------------- ------------- ------------
Cash flow from financing activities
Loan repayments (420) (765) (1,573)
Loan drawdown 2,992 - -
Proceeds from issue of share
capital 8 2 3
Loan interest payable (394) (187) (362)
Interest receivable 1 7 11
Net cash provided by/ (used
in) financing activities 2,187 (943) (1,921)
------------------------------------------ ------------- ------------- ------------
Net change in cash and cash
equivalents (4,535) 2,084 3,748
------------------------------------------ ------------- ------------- ------------
Cash and cash equivalents at
beginning of period 7,920 4,172 4,172
Cash and cash equivalents at
end of period 3,385 6,256 7,920
------------------------------------------ ------------- ------------- ------------
Condensed Notes to the Interim Report
For the period ended 30 June 2018
1. Nature of operations and general information
Frontier Smart Technologies Group Limited and subsidiaries' (the 'Group') principal activity is that of commercial exploitation of wireless infrastructure technologies with commercial propositions for the consumer electronic sector.
Frontier Smart Technologies Group Limited is the Group's ultimate parent company. It is incorporated in the Cayman Islands. The address of Frontier Smart Technologies Group Limited's registered office is Elgin House, 119 Elgin Avenue, George Town, Grand Cayman, Cayman Islands. Frontier Smart Technologies Group Limited's shares are listed on the Alternative Investment Market of the London Stock Exchange. Frontier Smart Technologies Group Limited's consolidated condensed interim financial statements are presented in US Dollars ($).
The financial information set out in this interim report does not constitute statutory accounts. The interim financial statements have not been audited or reviewed by the Group's auditor. The Group's statutory financial statements for the year ended 31 December 2017 are available from the Group's website. The auditor's report on those financial statements was unqualified.
2. Accounting Policies
Basis of Preparation
These interim condensed consolidated financial statements are for the six months ended 30 June 2018. They have been prepared following the recognition and measurement principles of IFRS as adopted by the European Union. The condensed set of financial statements included in this interim report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting", as adopted by the European Union. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2017.
These financial statements have been prepared on the going concern basis and under the historical cost convention.
These condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 31 December 2017 except for the adoption of new standards as described below
New Standards adopted as at 1 January 2018
The group has adopted the new accounting pronouncements which have become effective this year, and are as follows:
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 'Revenue from Contracts with Customers' and the related 'Clarifications to IFRS 15 Revenue
from Contracts with Customers' (hereinafter referred to as 'IFRS 15') replace IAS 18 'Revenue', IAS 11 'Construction Contracts', and several revenue-related Interpretations. Following a review of all revenue streams it has been determined that no opening adjustments with respect to the adoption of IFRS 15 are required.
IFRS 9 'Financial Instruments'
IFRS 9 replaces IAS 39 'Financial Instruments: Recognition and Measurement'. It makes major changes to the previous guidance on the classification and measurement of financial assets and introduces an 'expected credit loss' model for the impairment of financial assets.
When adopting IFRS 9, the Group has applied transitional relief and opted not to restate prior periods. Differences arising from the adoption of IFRS 9 in relation to classification, measurement, and impairment are recognised in retained earnings.
The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed consolidated interim financial statements.
Change in presentation and functional currency
From 1 January 2018 the Group has changed its presentation currency to US dollars. Comparative information has been restated in US dollars in accordance with the guidance defined in IAS 21 'The Effects of Changes in Foreign Exchange Rates'. The 2017 interim and full year income statements and associated notes have been translated from pounds sterling to US dollars using the procedures outlined below:
-- Assets and liabilities were translated into US dollars at closing rates of exchange for that period. Trading results were translated into US Dollars at average rates of exchange. Differences resulting from the retranslation on the opening net assets and the results for the year have been taken to reserves;
-- Share capital, share premiums and other reserves were translated at historic rates prevailing at the dates of transactions; and
-- All exchange rates used were extracted from the Group's underlying financial records.
IAS 21 describes functional currency as 'the currency of the primary economic environment in which entity operates'. The Board determined the functional currency of Frontier Silicon Limited had changed to US dollars, effective 1 January 2018.
Historically, the Group has used sterling as its presentational currency and as the functional currency of its principal subsidiary Frontier Silicon Limited. The Board has determined that it would be more appropriate to record the underlying transactions of Frontier Silicon Limited in dollars from 1 January 2018 and to change the presentational currency to US dollars.
The main factor behind this change is that the Group reported its first positive EBITDA in 2017 and the continuing outlook for EBITDA is of sustainable positive growth. Revenue and of cost of sales are predominantly in US dollars, the cessation of silicon development has led to sterling overheads for the company having fallen as a proportion of revenue. During the latter half of 2017 an increased level of trading activity arose from customers based in the USA and this is expected to continue for the foreseeable future. This has resulted in the US dollar having a greater importance on the activities of the Group and the Income Statement of Frontier Silicon Limited.
The Group's board determined that the functional currency of its principal operating entity had permanently changed to US dollars, effective 1 January 2018. In accordance with IAS 21 this change has been accounted for prospectively from this date.
3. Revenue by sector
Unaudited Audited
Unaudited 30 June 31 December
30 June 2017 2017 2017
$'000 $'000 $'000
Radio 14,862 23,135 46,830
Smart Audio 2,180 1,831 6,148
Revenue 17,042 24,966 52,978
------------ ------------- --------- ------------
Segmental information
Management currently identifies three divisions as operating segments.
For the period Radio Smart Group Total
ended Audio
30 June 2018 $'000 $'000 $'000 $'000
Revenue 14,862 2,180 - 17,042
Cost of sales (8,647) (1,259) - (9,906)
--------------------- --------------------- ------------------- ---------------------
Gross profit 6,215 921 - 7,136
--------------------- --------------------- ------------------- ---------------------
Research &
development (976) (3,587) - (4,563)
Sales &
administrative
expenses -
other (2,218) (1,995) (470) (4,683)
---------------------------- --------------------- --------------------- ------------------- ---------------------
EBITDA 3,021 (4,661) (470) (2,110)
---------------------------- --------------------- --------------------- ------------------- ---------------------
Non-recurring
costs - - (234) (234)
Amortisation of
intellectual
property (1,261) - - (1,261)
Depreciation (171) (43) - (214)
Share based
payment - - (279) (279)
--------------------- --------------------- ------------------- ---------------------
Total
administrative
expenses (4,626) (5,625) (983) (11,234)
--------------------- --------------------- ------------------- ---------------------
Profit/ (loss)
from continuing
operations 1,589 (4,704) (983) (4,098)
Net finance
payable 1 - (394) (393)
Profit/ (loss)
before
taxation 1,590 (4,704) (1,377) (4,491)
--------------------- --------------------- ------------------- ---------------------
For the period Smart Group Total
ended Radio Audio
30 June 2017 $'000 $'000 $'000 $'000
Revenue 23,135 1,831 - 24,966
Cost of sales (13,239) (1,494) - (14,733)
--------------------- --------------------- ------------------- ---------------------
Gross profit 9,896 337 - 10,233
--------------------- --------------------- ------------------- ---------------------
Research &
development (1,107) (2,519) - (3,626)
Sales &
administrative
expenses -
other (2,388) (2,467) (366) (5,221)
---------------------------- --------------------- --------------------- ------------------- ---------------------
EBITDA 6,401 (4,649) (366) 1,386
---------------------------- --------------------- --------------------- ------------------- ---------------------
Amortisation of
intellectual
property (1,487) (4) - (1,491)
Depreciation (152) (38) - (190)
Share based
payment - - (450) (450)
--------------------- --------------------- ------------------- ---------------------
Total
administrative
expenses (5,134) (5,028) (816) (10,978)
--------------------- --------------------- ------------------- ---------------------
Profit/ (loss)
from continuing
operations 4,762 (4,691) (816) (745)
Net finance
payable 7 - (187) (180)
Profit/ (loss)
before
taxation 4,769 (4,691) (1,003) (925)
--------------------- --------------------- ------------------- ---------------------
For the period Smart Group Total
ended Radio Audio
31 December $'000 $'000 $'000 $'000
2017
Revenue 46,830 6,148 - 52,978
Cost of sales (26,924) (4,243) - (31,167)
--------------------- --------------------- ------------------- ----------------------
Gross profit 19,906 1,905 - 21,811
--------------------- --------------------- ------------------- ----------------------
Research &
development (2,319) (6,151) - (8,470)
Sales &
administrative
expenses -
other (5,324) (4,876) (675) (10,875)
--------------------------- --------------------- --------------------- ------------------- ----------------------
EBITDA 12,263 (9,122) (675) 2,466
--------------------------- --------------------- --------------------- ------------------- ----------------------
Amortisation of
intellectual
property (3,015) (10) - (3,025)
Depreciation (306) (71) - (377)
Share based
payment - - (793) (793)
--------------------- --------------------- ------------------- ----------------------
Total
administrative
expenses (10,964) (11,108) (1,468) (23,540)
--------------------- --------------------- ------------------- ----------------------
Profit/ (loss)
from
continuing
operations 8,942 (9,203) (1,468) (1,729)
Net finance
payable 11 - (362) (351)
Profit/ (loss)
before
taxation 8,953 (9,203) (1,830) (2,080)
--------------------- --------------------- ------------------- ----------------------
4. Loss per share
The calculation of the basic loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period. The impact of the share options on the loss per share is anti-dilutive.
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2018 30 June 2017 31 December 2017
$'000 $'000 $'000
Loss for the period
attributable to equity
shareholders $4,645 $1,536 $2,472
Weighted average number
of 10p ordinary shares 42,784,343 42,751,710 42,758,145
(Loss) per share -
basic and diluted (10.86)c (3.59)c (5.78)c
5. Goodwill
Frontier Frontier
Silicon Microsystems Total
$'000 $'000 $'000
Cost
At 1 January 2017 10,548 7,354 17,902
Foreign exchange in period 540 376 916
Additions - - -
-------- ------------- ------
At 30 June 2017 11,088 7,730 18,818
Foreign exchange in period 460 321 781
Additions - - -
-------- ------------- ------
At 31 December 2017 11,548 8,051 19,599
Foreign exchange in period (275) - (275)
Disposals - - -
At 30 June 2018 11,273 8,051 19,324
======== ============= ======
Impairment
At 1 January 2017 - 7,354 7,354
Foreign exchange in period - 376 376
-------- ------------- ------
At 30 June 2017 - 7,730 7,730
Foreign exchange in period - 321 321
-------- ------------- ------
At 31 December 2017 - 8,051 8,051
Disposals - - -
-------- ------------- ------
At 30 June 2018 - 8,051 8,051
Net book amount at 30 June
2018 11,273 11,273
======== ============= ======
Net book amount at 30 June
2017 11,088 - 11,088
======== ============= ======
Net book amount at 31 December
2017 11,548 - 11,548
======== ============= ======
6. Other intangible assets
Marketing Customer Other Licence &
intellectual intellectual intellectual Development
property property property fees Total
$'000 $'000 $'000 $'000 $'000
Cost
At 1 January 2017 4,943 2,088 12,609 19,559 39,199
Foreign exchange on opening
balances 253 107 646 1,001 2,007
Additions - - - 27 27
Disposals - - - - -
------------- ------------- ------------- ------------ --------
At 30 June 2017 5,196 2,195 13,255 20,587 41,233
Foreign exchange on opening
balances 215 91 548 854 1,708
Additions - - - - -
Disposals - - - (14) (14)
------------- ------------- ------------- ------------ --------
At 31 December 2017 5,411 2,286 13,803 21,427 42,927
Foreign exchange on opening
balances (129) (54) (329) 166 (346)
Additions - - - 37 37
Disposals - - - (19,393) (19,393)
At 30 June 2018 5,282 2,232 13,474 2,237 23,225
============= ============= ============= ============ ========
Amortisation
At 1 January 2017 2,141 755 6,868 18,919 28,683
Foreign exchange on opening
balances 118 42 375 979 1,514
Charge in period 252 88 800 351 1,491
Disposals - - - - -
At 30 June 2017 2,511 885 8,043 20,249 31,688
Foreign exchange on opening
balances 111 38 353 845 1,347
Charge period 264 94 838 338 1,534
Disposals - - - (14) (14)
------------- ------------- ------------- ------------ --------
At 31 December 2017 2,886 1,017 9,234 21,418 34,555
Foreign exchange on opening
balances (80) (28) (255) 166 (197)
Charge in period 275 96 873 17 1,261
Disposals - - - (19,393) (19,393)
At 30 June 2018 3,081 1,085 9,852 2,208 16,226
============= ============= ============= ============ ========
Net book amount at 30 June
2018 2,201 1,147 3,622 29 6,999
============= ============= ============= ============ ========
Net Book amount at 30 June
2017 2,685 1,310 5,212 338 9,545
============= ============= ============= ============ ========
Net book amount at 31 December
2017 2,525 1,269 4,569 9 8,372
============= ============= ============= ============ ========
Intellectual property
Intellectual property relates to the valuation of beneficial licence agreements, trade names and customer relationships at the date of their original acquisition.
Licence & development fees
The licences relate to technology on new projects essential to the future development of the new generation digital chips. The licences will be amortised in accordance with the Group accounting policy and will be subject to an annual impairment review.
Marketing
Marketing-related intangible assets are defined as those assets that are primarily used in the marketing or promotion of products and services. The Frontier solutions are well known and preferred by a majority of the consumer electronic brands who specifically instruct their manufacturers to use Frontier modules and solutions in their audio systems.
Customer relationships
Customer-related intangible assets may consist of customer lists, order or production backlogs, customer contracts and relationships, and non-contractual customer relationships. Frontier has developed relationships with both consumer electronic brands and manufacturers. The customer relationship valuation captures the economic benefits of having these trading relationships.
7. Trade and other receivables
Unaudited Unaudited Audited
30 June 30 June 31 December
2018 2017 2017
$'000 $'000 $'000
Trade receivables 5,339 4,404 2,919
Other debtors 854 1,114 823
Prepayments and accrued income 1,265 572 666
Trade and other receivables 7,458 6,090 4,408
------------------------------- --------- --------- ------------
Trade and other receivables are usually due within 30 - 60 days and do not bear any effective interest rate.
The fair value of these short term financial assets is not individually determined as the carrying amount is a reasonable approximation of fair value.
8. Trade and other payables
Unaudited Unaudited Audited
30 June 30 June 31 December
2018 2017 2017
$'000 $'000 $'000
Trade payables 7,353 7,112 4,340
Other payables 1,391 978 1,270
Accruals and deferred income 3,364 4,635 5,905
Loan 6,538 1,507 3,885
Trade and other payables 18,646 14,232 15,400
----------------------------- --------- --------- ------------
9. Creditors: amounts falling due after more than one year
Unaudited Unaudited Audited
30 June 30 June 31 December
2018 2017 2017
$'000 $'000 $'000
Loan - 2,976 -
Loan - 2,976 -
----- --------- --------- ------------
Loan
Frontier Smart Technologies Group Limited entered into a loan facility agreement in October 2015 for a maximum of GBP5,000,000. The loan accrued interest monthly at 6.25% above three-month LIBOR with interest repayable in 12 quarterly instalments commencing 29 December 2015. Capital repayments were payable quarterly in ten instalments commencing March 2016, made up of nine instalments of GBP300,000 and a final instalment of GBP2,300,000. The loan carried a fixed and floating charge over all the property, assets and undertakings of the Group.
This loan was repaid on 23 May 2018 and replaced by a new revolving credit facility with Clydesdale of GBP5,000,000 over three years. The facility accrues interest monthly at 4.75% above three-month LIBOR with interest repayable quarterly, interest on any amount not drawn down is 1.9%. The loan carries a fixed and floating charge over all the property, assets and undertakings of the Group.
10. Share capital
Unaudited Unaudited Audited
30 June 2018 30 June 2017 31 December 2017
Authorised
100,000,000 ordinary shares
of 10p 10,000,000 10,000,000 10,000,000
Allotted, issued and fully
paid 42,825,554 42,761,636 42,766,171
$ 6,843,975 6,835,175 6,836,352
----------------------------- --------------- --------------- -------------------
The movement in the number of
shares is as follows:
Number of
ordinary shares
At 1 January 2017 42,748,464
Shares issued 13,172
At 30 June 2017 42,761,636
Shares issued 4,535
At 31 December 2017 42,766,171
Shares issued 59,383
At 30 June 2018 42,825,554
-----------------
All shares are equally eligible to receive dividends and the repayment of capital and represent equal votes at meetings of shareholders with the exception of 2,124,627 shares held jointly by the Employee Benefit Trust and participants for the purpose of the Company's joint share ownership plan in relation to which all voting rights have been waived.
Allotments
12 March 2018 3,245 ordinary shares of 10p were issued in relation to the exercise of share options by employees.
3 April 2018 33,113 ordinary shares of 10p were issued in relation to the exercise of share options by employees.
8 May 2018 20,400 ordinary shares of 10p were issued in relation to the exercise of share options by employees.
4 June 2018 2,625 ordinary shares of 10p were issued in relation to the exercise of share options by employees.
11. Financial Instruments
The Group uses financial instruments comprising cash and cash equivalents, other loans and various other short-term instruments such as trade receivables and trade payables which arise from its operations. The main purpose of these financial instruments is to fund the Group's business strategy and the short-term working capital requirements of the business.
Financial assets by category
The IAS 39 categories of financial asset included in the balance sheet and the headings in which they are included are as follows:
30 June 2018
Loans Non Balance
and financial sheet
receivables assets total
$'000 $'000 $'000
Goodwill - 11,273 11,273
Other intangibles
assets - 6,999 6,999
Property, plant
and equipment - 579 579
Inventories - 6,253 6,253
Trade receivables 5,339 - 5,339
Other receivables 854 - 854
Prepayments and
accrued income 1,265 - 1,265
Tax receivable 170 - 170
Cash and cash
equivalents 3,385 - 3,385
Total 11,013 25,104 36,117
============ ========== =======
30 June 2017
Loans Non Balance
and financial sheet
receivables assets total
$'000 $'000 $'000
Goodwill - 11,088 11,088
Other intangibles
assets - 9,545 9,545
Property, plant
and equipment - 441 441
Inventories - 5,396 5,396
Trade receivables 4,404 - 4,404
Other receivables 1,114 - 1,114
Prepayments and
accrued income - 572 572
Tax receivable - 415 415
Cash and cash
equivalents 6,256 - 6,256
------------ ---------- -------
Total 11,774 27,457 39,231
============ ========== =======
31 December 2017
Loans Non Balance
and financial sheet
receivables assets total
$'000 $'000 $'000
Goodwill - 11,548 11,548
Other intangibles
assets - 8,372 8,372
Property, plant
and equipment - 411 411
Inventories - 4,784 4,784
Trade receivables 2,919 - 2,919
Other receivables 823 - 823
Prepayments and
accrued income - 666 666
Tax receivable - 170 170
Cash and cash equivalents 7,920 - 7,920
Total 11,662 25,951 37,613
============ ========== =======
Financial liabilities by category
The IAS 39 categories of financial liability included in the balance sheet and the headings in which they are included are as follows:
Unaudited Unaudited Unaudited Unaudited Audited Audited
30 June 30 June 30 June 30 June 31 December 31 December
2018 2018 2017 2017 2017 2017
Other Other Other
financial financial financial
liabilities liabilities liabilities
at at at
amortised amortised amortised
cost Fair Value cost Fair Value cost Fair Value
$'000 $'000 $'000 $'000 $'000 $'000
Trade payables 7,353 7,353 7,112 7,112 4,340 4,340
Other payables 1,391 1,391 978 978 1,270 1,270
Accruals
and deferred
income 3,364 3,364 4,635 4,635 5,905 5,905
Loan 6,538 6,538 4,483 4,483 3,885 3,885
Total 18,646 18,646 17,208 17,208 15,400 15,400
============== ============= ============== ============= ============== =============
All financial assets and liabilities are stated at amortised cost.
The Group is exposed to a variety of financial risks which result from both its operating and investing activities. The Board is responsible for co-ordinating the Group's risk management and focuses on actively securing the Group's short to medium term cash flows. Long term financial investments are managed to generate lasting returns.
The Group does not actively engage in the trading of financial assets and has no financial derivatives. The most significant risks to which the Group is exposed are described below:
Credit risk
The Group's credit risk is primarily attributable to its trade receivables, recoverable taxation and cash and cash equivalents. The amounts presented in the balance sheet are net of any allowance for doubtful receivables, estimated by the Directors. The Group has a concentration of credit risk due to exposure from a limited number of customers. This is managed at the highest level in the Group. Cash at bank is all held with highly rated banks, the suitability of which is periodically reviewed.
Liquidity risk
The Group holds all of its financial assets as cash or cash equivalents which are entirely liquid. Trade receivables are recorded in the normal course of business and have maturities of less than 3 months. The Directors prepare rolling cash flow forecasts and would seek to raise additional funding whenever a shortfall in facilities is forecast. Details of the funding status of the Group are included in the going concern paragraph in the principal accounting policies.
Currency risks
The Group is exposed to translation foreign exchange risk in connection with its investment in Frontier Silicon Ltd whose subsidiaries are Frontier Silicon (Hong Kong) Ltd incorporated in Hong Kong and Frontier Silicon SRL incorporated in Romania. The Group does not hedge any transactions. As a result, the Group is subject to foreign currency risk in respect of accounting for its investment in the subsidiaries.
12. Post Balance Sheet Events
There have been no material events since 30 June 2018.
- Ends -
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR GGUCABUPRGAM
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September 18, 2018 02:00 ET (06:00 GMT)
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